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Cite as: [2005] CSOH 90, [2005] ScotCS CSOH_90

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O'connor & Anor v. Bullimore Underwriting Agency Ltd (t/a The Leisure Consortium At Lloyds) [2005] ScotCS CSOH_90 (08 July 2005)

OUTER HOUSE, COURT OF SESSION

[2005] CSOH 90

CA152/01

OPINION (NO. 2) OF

LORD MACFADYEN

in the cause

FRANK O'CONNOR AND ANOTHER

Pursuers;

against

BULLIMORE UNDERWRITING AGENCY LIMITED, trading as THE LEISURE CONSORTIUM AT LLOYD'S

Defenders:

________________

Defenders: Woolman, QC, Simpson & Marwick, WS

Interested Party: Scott, QC, DLA (for Squire & Co, London)

8 July 2005

Introduction
[1] In this action the pursuers, who until 21 February 2001 conducted a lounge bar, nightclub and health club business in premises at 5 Dalziel Street, Motherwell, sought declarator that the defenders were bound, in terms of a contract of insurance between them, to indemnify them in respect of the losses which they sustained in a fire which took place at the premises on that date.

[2] In connection with their obtaining the insurance policy with which the action was concerned, the pursuers were advised by insurance brokers, Logie & McArthur Insurance Brokers Limited ("Logie & McArthur"), and in particular by Mr Alexander McArthur of that company. Certain issues arose in the case as to whether the defenders were entitled to avoid the policy because of the way in which the proposal form had, in certain respects, been completed by the second pursuer, Mrs O'Connor. Mr McArthur had assisted the first pursuer in completing the proposal form and had advised her as to the meaning of certain of the questions which she had to answer.

[3] After a lengthy proof, I pronounced an interlocutor on 24 February 2004 assoilzing the defenders.

[4] It is common ground that, until the sixth day of the proof, Logie & McArthur funded the pursuers' conduct of the action. Their motive for doing so no doubt was that in the event that the defenders were held to be entitled to avoid the policy for reasons relating to the way in which the proposal form had been completed, the pursuers might seek recourse on grounds of professional negligence against Logie & McArthur. In the period after the sixth day of the proof the pursuers proceeded with the benefit of legal aid.

The Motion
[5] On 8 June 2005 the defenders enrolled a motion seeking a finding that Logie & McArthur are liable to them in the expenses of the action to the conclusion of the eighth day of the proof. That motion was opposed on behalf of Logie & McArthur. When the motion came before me for hearing, Mr Woolman, who appeared for the defenders, restricted it to the expenses of the action to the conclusion of the sixth day of the proof.

The Issue
[5] In essence the defenders' contention was that the circumstances were such that Logie & McArthur should be held to have been, during the period identified in the (amended) motion, the dominus litis. That contention was disputed by Logie and McArthur. The issue turns on the application of the appropriate legal test to the circumstances of the particular case.

The Circumstances
[6] As I have already recorded, it is not disputed that Logie & McArthur funded the pursuers' conduct of the action until the end of the sixth day of the proof. The terms on which they did so were set out in a letter dated 6 July 2001 from Logie & McArthur's solicitors to the pursuers' solicitors. The material part of the letter was in the following terms:

"Our clients' insurers would be prepared to finance an action at the instance of your clients, Mr and Mrs Frank O'Connor against their own insurers to the extent of fees of £10,000 plus VAT. They would accept a further liability for outlays incurred up to the sum of £5000.

Your clients undertake not to raise proceedings against our clients, Logie & McArthur Insurance Brokers Limited, unless and until their action against their own insurers has failed.

Our clients' insurers would also like to have sight of the pleadings if possible at the draft stage so that they may make any comments that they feel would be of assistance. They would not intend in any way to interfere with your obligation to act in the best interests of your clients."

The agreement was subsequently varied to increase the financial limits.

[7] I was also informed that there was an understanding that, in the event of the pursuers succeeding in the action and recovering expenses from the defenders, the funding received from Logie & McArthur would be refunded to such extent as the recovered expenses permitted.

[8] There was also laid before me a letter dated 27 June 2005 from the pursuers' solicitors to Logie & McArthur's solicitors. It was signed by Mr Moore, the solicitor-advocate who conducted the proof on the pursuers' behalf. So far as material, it was in the following terms:

"I confirm that neither you nor your clients had any control over the litigation which I pursued on behalf of Mr and Mrs O'Connor. I did report significant developments in the case to you for information but my instructions came solely from Mr and Mrs O'Connor and there was no question of my accepting instructions from you or your clients.

I confirm that there was no arrangement in terms of which your clients would receive any financial reward in the event of the action being successful. I suspect that they may have been entitled to some refund of part of the funding provided in the event that we recovered judicial expenses from the other side but I do not recollect any specific agreement in place about that."

The Law
[9] Mr Woolman, for the defenders, submitted that the relevant legal principles could be found in Cairns v McGregor 1931 SC 84, in which earlier cases were reviewed. Mr Scott, for Logie & McArthur, also cited directly several of the cases reviewed in Cairns. What I take from those cases is that, for a third party who gives financial support to litigation conducted in the name of another to make himself liable in expenses as dominus litis, he must have an interest in the litigation and control of it (Mathieson v Thomson (1853) 16 D 19 per Lord Rutherfurd at 23, approved by Lord Justice Clerk Alness in Cairns at 89).

[10] So far as interest is concerned, the matter was put in the following way by Lord President Dunedin in McCuaig v McCuaig 1909 SC 355 at 357, (approved by Lord Justice Clerk Alness and Lord Hunter in Cairns):

"It must be shown that the party who is to be brought into the suit [as dominus litis] has the true interest in the cause, and by true interest I mean the entire interest, using that term not in the absolute sense, but as denoting the whole interest for all practical purposes."

It is not sufficient that the third party have "some ultimate consequent benefit"; rather he must have a "direct interest in the subject matter of the litigation" (per Lord Rutherford in Mathieson v Thomson at 23). The interest "must be so direct and dominant as to yield control of the suit" (per Lord Justice Clerk Alness in Cairns at 89).

[11] In Mathieson v Thomson at 23 Lord Rutherfurd formulated the test of the degree of control that is required to qualify a person as dominus litis as follows:

"... a party ...[who is] master of the litigation itself, having the control and direction of the suit, with power to retard it, or push it on, or put an end to it altogether".

That observation had the approval of Lord Justice Clerk Alness in Cairns. In that case at 94 Lord Hunter quoted with approval the following passage from the opinion of Lord President Dunedin in McCuaig at 257:

"The true test of whether a party is or is not dominus litis is probably whether he has or has not the power to compromise the action."

[12] Mr Woolman referred to two passages in Cairns in support of the proposition that the matters of interest and control were matters of circumstance in each case. Lord Justice Clerk Alness said (at 90):

"It is no doubt very difficult to describe in terms which will fit every case the interest required of a dominus litis, and I shall not essay the task."

Lord Hunter said (at 94):

"I do not think it necessary to attempt an exhaustive definition of what may be held to amount to the interest which is sufficient, combined with control of an action, to make a stranger a dominus."

It does not seem to me, however, that these observations detract from the views which I have quoted in paragraphs [10] and [11] above.

[13] Mr Woolman also referred to Main v Rankin & Sons 1929 SLT 20 as support for the proposition that a third party might be held to have been dominus litis in respect of part only of a litigation. I did not understand that proposition to be disputed. I accept it. No separate difficulty therefore arises from the fact that Logie & McArthur funded the pursuers' action only until the sixth day of the proof.

Discussion
[14] In my opinion, Logie & McArthur did not have a sufficiently direct interest in the action at the instance of the pursuers against the defenders to lay themselves open to being held to have been dominus litis. The subject matter of the litigation was whether in the circumstances the defenders were obliged in terms of the policy they had issued to indemnify the pursuers against the losses which they suffered as a result of the fire. That was not a matter in which Logie & McArthur had any direct interest. Their interest was the indirect one that, if the pursuers' action against the defenders failed, and did so only because of the way in which the proposal form had been completed with the help and advice of Mr McArthur, they might be sued by the pursuers for professional negligence. In that sense it was in their interest that the pursuers proceed with the action against the defenders and succeed in obtaining indemnity. I am of opinion that, on a sound reading of the authorities cited in paragraph [10] above, the indirect interest which Logie & McArthur had in the outcome of the action by the pursuers against the defenders was insufficient to make them dominus litis.

[15] In any event, I am of opinion that it is clear that, notwithstanding the financial support which they gave to the action, Logie and McArthur did not have the requisite degree of control over the conduct of it to qualify as dominus litis. Mr Woolman submitted that it could properly be inferred that if settlement had been proposed while Logie & McArthur were funding the action, they would have had a substantial say in whether or not the offer should be accepted. I do not accept that submission. It seems to me, both from the terms of the letter of 6 July 2001 which set out the basis on which the funding was provided, and from the terms of Mr Moore's letter of 27 June 2005, that it is clear that Logie & McArthur were at pains not to interfere in the conduct of the action, beyond making it possible by the provision of funding. I do not consider that they can be regarded as having had the sort of control contemplated in the authorities mentioned in paragraph [11] above.

Result
[16] For the reasons which I have set out, I refuse the defenders' motion.